In these tough economic times, people are looking for sound investment opportunities. People desire investments that are low risk but yield great returns. Such opportunities are hard to come by. Owning multifamily properties offers you the best of both worlds. Here are 10 advantages of owning multifamily properties.
1. You can outsource your property management to professionals. This allows you to go on vacation.
2. You can buy with none of your own cash. It is easier to get financing on apartments than on single family homes. The more you borrow the less they look at the borrower’s credit. You can raise private money to cover any cash requirements.
3. Apartments are made to cash flow even with nothing down which means that there is one roof with maybe twenty apartments under it as opposed to one house with one roof. Houses are made to be bought and sold to homeowners. You can convert them to rental properties but apartments are designed to be income-producing properties.
4. You receive better leverage of your time and effort. It is much easier to maintain a 10 unit apartment building than it is to maintain 10 single family houses.
5. The value of income properties is based on the income. It is a function of the net operating income and you can create value by raising the rents and cutting the expenses. You will then know how to invest your money and your time.
6. Less competition. There are fewer people out doing multifamily deals than single family deals because they lack specialized knowledge and they lack mindset.
7. There is less risk. You have less risk from the standpoint that you have multiple tenants and multiple revenue streams. An apartment is a business. If you have a house and you lose your tenant than you are feeding the house. There is mitigated risk through apartments.
8. Non-recourse financing. The more money you borrow, the easier it is to borrow. When you get to borrowing two million dollars and above, it becomes non-recourse financing and this means the asset is the sole security for the loan. There is no one personally guaranteeing the loan.
9. Condo conversion. You can buy apartment buildings and convert them into condominiums. It is a different strategy because you are putting all of your cash forward and then pulling out. It is not a long-term hold strategy.
10. The sub prime lender bust. With sub prime mortgage lenders falling out of the market, there are people who cannot qualify for houses and foreclosures are up. This means that the demand for rentals is going up.
Buying multifamily properties allows you to have low risk and great return for your investment. If you are looking for an investment vehicle, multifamily property investing is a great way to go.
It is probably pretty safe to say that everyone is looking to create wealth. Real estate investing is an excellent venue through which you can create massive wealth. There are four components in real estate investing that you need to accomplish this goal. These components are specialized knowledge, marketing, systems and mindset.
Specialized knowledge encompasses all of the techniques needed to acquire multifamily properties. In addition, it is also the knowledge that you need to operate multifamily properties, analyze multifamily properties and most importantly, how to find multifamily properties.
Marketing in real estate involves three different areas that you need to be aware of. Marketing means marketing to find deals, marketing to find private money and marketing to find tenants for your property. Of course, you can use a property manager to find tenants for your property, but you still need to be cognizant of the fact that this is an area that requires marketing.
Marketing is extremely important in real estate. If you are not attending to your marketing, then you do not have a business. If your phone is not ringing, then all you have is a hobby and not a business.
Systems are what you will put in place so that you will ultimately have other people working at your business for you. You want to have systems in place where others are doing your marketing, property management and bookkeeping. You do not truly have a business unless there are documented systems.
Your definitive goal is have your business serve you. A business is an asset that throws off income forever without you and your direct involvement.
Mindset is the fourth and probably the most critical component of real estate investing. None of the items above can happen unless you take action. Taking action comes down to having the right mindset, and overcoming the limiting beliefs that your subconscious places upon you.
You cannot separate mindset from your real estate investing because you ARE the business and your mindset will determine the direction your business takes. The strength of your business is a function of the strength of your mindset.
Creating wealth through real estate investments is very real and it is up to you to take the initiative and take the necessary steps. You can use parts of these four components, or you can use individual components and make money, even good money, but if you want to have wealth, you will need to have all four components in place.
It took me awhile to figure this out. But it’s actually easier to raise large amounts of money than small amounts. For example, today, you can get 100% financing on $5 Million deals, often easier than raising $50,000.
Why?
Because there’s more “cheese” in the big money deal for everyone. Whoever it is, they make more money moving $5,000,000 than they do moving $50,000. And if you’re paid to move money as a broker, do you think you’d spend more time on the $50,000 deal or the $5,000,000 deal?
That’s right. The bigger deal.
There are hedge funds that will do 100% financing but for nothing less than $3 million. They make money by moving large blocks of funds.
Plus, they recognize the economies of scale and reduced risk with bigger deals so it’s prudent for them.
They simply don’t want to mess around with “small deals.”
And the big money sources fully entertain 100% financing deals. They just want to make sure that their investment is properly protected – which is the magic behind the Raising Private Money Formula (more later).
With crisis comes opportunity, for those who are looking for it.
So what’s the opportunity with the economic crisis? It’s this…
What’s left of stock equity has exited Stage Right into temporary safe havens like CD’s – yielding 1%. And now that the emotion has died down, these CD investors have come to realize that they can’t recoup 40-50% losses investing in 1% CD’s.
They need to put their money to work. And that’s where we as entrepreneurs enter the scene. And that’s the opportunity: matching their dollars with our deals.
Private money (by the bushels) is looking for good, solid hard-asset based real estate deals to invest in. Not the kind of real estate where the value was driven up by the Ponzi Scheme known as sub-prime mortgages. But rather, old-fashioned wealth creating real estate deals whose value is based on location and/or performance.
That’s our opporutnity. Private money is screaming for our deals.
Everyone – including private investors – is looking for a return to feelings of normalcy. Remeber the times when you expected to earn a positive return on your investments? And that’s the normalcy you can provide private investors.
We just need to know how to locate and attract them – using the Raising Private Money Formula.
Whether $20,000 or $20,000,000, the money is looking for your deal right now! You just need to know how to signal it in.
The money is begging for our deals.
Two students of Lance Edwards’ Mutlifamily Success LIVE event share their enthusiasm:
“We just finished a LIVE event with Lance Edwards and it was great!” We learned a lot…a whole lot! We put some knowledge into this man’s head. One day, he’s going to grow up…and I’m going to work for him probably, but first I’m going to make it as a manager of these systems.”
“I think this Multifamily can take us a long way, and Lance, you know what I’m saying, he gave us a lot of knowledge and I hope that I can remember all of it and use it, and I’m going to use it to secure my Financial Freedom and take myself further in life.”
Jim Craig, a member of my multifamily apprentice group, was recently interviewed about apartments, the economy, and how he’s creating success in today’s market.
Jim stresses the importance of mindset and how mindset can overcome today’s economic conditions.
There are some very ingenious ways to get your multifamily property deals done. Three of the lesser known avenues for obtaining private funds are the wrap around mortgage, splitting off the property and the option. Here we will examine how each of these options work.
Wrap Around Mortgage: this is the scenario where you will take over someone else’s note. Let’s say that there is a house that you want to buy and it has a first mortgage on it. They are actually going to be the lender. You will pay the seller. Your note is written with them and their note wraps around the existing note.
For example, you buy the house for $100,000. They agree to no down payment. Their mortgage is $80,000. Your mortgage to them is for $100,000. They get payments based on $100,000 and the mortgage is wrapped around the $80,000 mortgage. Let’s say their principle interest payment before was $800.
Your principle interest payment is $1,000. I’m paying them $1,000 and they have to pay $800 so they are making $200 per month in passive income because of the wrap around of their mortgage. A wrap around mortgage means that your loan is of a higher amount with different payment terms.
Splitting Off the Property: let’s say you own a 10-unit apartment building that you bought on 3 1/2 acres. The building sits on one acre and the other 2 1/2 acres is raw land. You put it under contract and you have 60 days to close. You can then find a buyer for the land and get that under contract and have them bring the money at closing. You could use the money for the land to be the down payment on the apartment building and it is split right there at the table. You are splitting the property and pre-selling it before you go to closing.
Option: you can get an option on a property. You could lease with a lease option or you could do a joint venture turnaround. Another twist on this is that you will not be a 50/50 partner but instead will come in and improve the property. It is worth $900,000 today and you will drive it up to $1.2 million or above.
You will do that at no charge but you want the option to buy the property at $1.2 million. The owner is getting everything up to a $300,000 increase and you get everything above the $1.2 million. This is another form of a joint venture turnaround. You have the option rather than an equity partner.
Wrap around mortgages, splitting the property and options are just three more great ways to structure a multifamily property deal. The more you look at putting together a multifamily property deal, the more you realize that the options that are available to you allow you great flexibility.
Are you still looking for inventive ways to get your multifamily property deal done? The venues that you can utilize to get your deal done are numerous. Below are ten more possibilities for you to consider.
1. Triple New Lease Option – This is where you lease the property from the seller and you pay rent but you have an option to but as well and sublet. This is the “lease-option” for the property.
2. 401k Loan – If you have your own 401k money or you know someone who does, you can actually borrow against it for funds. Be careful because if it is your 401k money and you leave your job or get laid off, then the money is immediately due. Once you leave the company you cannot borrow against it.
3. HELOC – Home Equity Line of Credit. If you have dead equity, pull it out. A line of credit means you can access it whenever you want to.
4. Home Equity Loan - You will get a lump sum amount and you pay it back over time.
5. Credit Card Loans – A word of caution: you need to be very judicious with this. This is more for short-term loans, especially if you get a low APR offer. Understand that the minimum payment will be 2% of the outstanding balance. This could be tough from a cash flow perspective because you are paying basically 24% of the balance due over the course of a year. It can be a great short-term play.
6. Unsecured Lines of Credit Personally – you can go to the bank and get an unsecured line of credit personally or you may know someone who has an unsecured line of credit or who can get one and become your money partner.
7. Unsecured Lines of Credit for Business – This is another direction for you if you have been established for a couple of years. You can do this with your business or with someone else’s business that can become your money partner.
8. Private Lender – someone with cash that will be a private lender.
9. Private Equity Partner – equity partner who will put cash into your deal.
10. Subject To – as you do it with houses, you can do this with any property. They all have “due on sale” clauses that you need to be aware of.
As you can see, the potential private money sources are plentiful. You do not have to rely upon all of the “old” standards. With an abundance of sources, your ability to successfully put together your multifamily property deal is almost limitless.
No goal is too high or dream too big when dealing with multifamily investing.
Hear one student’s dream of quitting his day job:
“My brother and I, we can quit our J-O-B’s if we can get a 200 unit apartment project!”
Once you have made the decision to start doing multifamily property deals, you might find the whole process a little intimidating. It does not need to be. It is simply a matter of following your MAPS. MAPS stand for Mindset Accountability Practice and Showing Up.
Your mindset can be your greatest asset or your greatest liability when it comes to putting together multifamily deals. The linguistics you use are the most powerful lever you have on your mind. For instance, if you think of yourself as a survivor, you are mentally relying on adversity to be successful.
You can be a problem solver that thrives in spite of any challenge that comes along. A problem solver is more empowering than the image of a survivor who is battling for existence.
Accountability will help to motivate you to accomplish the goals that you have set forth for yourself no matter how big or small they might be. You need to decide what you are going to do and then tell someone of your next plan or step. A commitment has then been made to someone and then when they have asked you if you have done what you committed to or not, you will be embarrassed to tell them no. Pride and the fear of failure will keep you focused on your goals.
Practicing on how you will present your multifamily deals to potential investors will help you to overcome your fear of speaking to them. Visualize a successful conversation where the investor wants to do the deal. As you visual your call, try to experience the feeling of a successful call. What will it would it sound like, feel like and smell like? Try to incorporate all of your senses.
Imagine a successful call and get it into your subconscious. Your subconscious does not know the difference between what is real and what is not real. Once you have it tucked away in your subconscious, it will manifest and create the positive things before you do the call. This will help drive you to make that call. Fear can be a constructive and productive thing.
Showing Up is 80% of your success. You may not have it all figured out by you are going to show up anyway. You can make plans of course, but keep in mind that some of the best laid plans go out the window once the ball starts rolling. Just show up.
Once you show up, everything else will change. That is how things go in real estate. If you do not show up for the multifamily deal, then someone else will and you get what is left behind. Just remember that good things come to those who wait but only those things left behind by those who hustle!
So do not let the prospect of putting together your first multifamily deal overwhelm and intimidate you. Use your Mindest Accountability Practice and Showing Up to encourage and empower you. Your road to financial freedom has just begun!
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